Environmental, Social and Governance risk reporting in the South African market

During February 2022 Clyde & Co published an insight on the development of Environmental, Social and Governance risk reporting and how this is handled in the South African market.

Click here for the February 2022 ESG article

This insight discussed how Environmental, Social and Governance (ESG) is growing in significance in South Africa, and provided an overview of the drafts of sustainability and climate disclosure guidance consultation papers, which the Johannesburg Stock Exchange (JSE) launched on 9 December 2021.

The JSE invited comments on the draft disclosure guidance consultation papers, which were due on or before 28 February 2022.

Following the receipt of comments, the JSE published two guidance documents on 14 June 2022, namely:

1. The Sustainability Disclosure Guidance; and
2. The Climate Change Disclosure Guidance.

Click here for the guidance documents

In this article, we provide an overview of the guidance documents and discuss the ESG impact that the guidance documents may have in South Africa.

Introduction

Companies are often uncertain about what ESG data to disclose and how to integrate sustainability considerations into their value creation pursuit. Investors often find it challenging to find high-quality ESG data when evaluating investments.

The guidance documents do not constitute disclosure or reporting obligations for issuers pursuant to the provisions of the JSE Listings Requirements. The guidance documents assist companies to voluntarily disclose high-quality ESG data, driving better disclosures and practices, which in turn helps create investor certainty.

The guidance documents are helpful for companies starting to disclose climate-related information for the first time as they provide a step-by-step guide. Companies which are already advanced in their climate reporting could benefit from the guides’ additional resources.

The global influences contained in the guides

The Sustainability Disclosure Guidance is aligned with the most influential global initiatives on sustainability and climate change disclosure. This includes the GRI Sustainability Reporting Standards, the Taskforce on Climate-related Financial Disclosures recommendations, and the IIRC’s International Framework. The frameworks and standards used are included in Annex 1 to the guide.

The Climate Change Disclosure Guidance aims to clarify the current global best practices in climate-related disclosure. The global best practice is included in chapter 4 of the guide.  

The structure of the guides

The guidance document starts off by outlining and discussing the key trends globally. According to the JSE, the guides are not intended to replace any of the global initiatives, but rather seeks to help companies navigate the landscape of reporting standards, and to provide explicitly for the South African context.

The guides then deal with how an organisation can approach climate disclosure and what climate related information a company should disclose. Further resources for companies to use are located at the end of the guides.

The Sustainability Disclosure Guidance follows the following structure:

1. What is sustainability and why report on it
2. How might an organisation approach sustainability disclosure
3. What sustainability information should a company disclose
4. Annexes (including global and regional standards and frameworks and draft South African and European reporting standards)

The Climate Change Disclosure Guidance follows the following structure:

1. Climate disclosure – Setting the Scene
2. How might an organisation approach climate disclosure
3. What climate related information should a company disclose
4. Education and resources
5. Annexes (including alignment of TCFD recommended disclosures and recent studies)

Conclusion

Although the guidance documents are not mandatory, they will assist corporations in South Africa who wish to integrate ESG into their reporting frameworks to become more aligned with the global ESG trends. This could in turn attract global investors who wish to invest in South African corporations with transparent ESG frameworks.